Gareth Johnson
Gareth Johnson
Updated on September 13, 2021

The term cloud mining refers to a method of blockchain-based cryptocurrency mining without using your own resources in the process. Namely, cloud miners rent cloud computing power and mine cryptocurrency coins such as Bitcoin (BTC) and Bitcoin Cash (BCH) without you needing to install the required software on their processing units. 

There are cloud mining companies that facilitate the remote mining process by allowing the miners to register an account via a cloud server. This service typically comes with a lower cost than if a miner uses their own computing power, equipment, and software.

Blockchain miners can access these cloud services via organized mining farms (or mining pools) that offer server capacity and processing software and reduce miners’ power consumption and data storage via the Internet. This way, miners pay only for the spent electricity, not for the software or the computing units. An added benefit to cloud mining is that the crypto miners can utilize its services from just about any location in the world. 

Cloud Mining Models

There are two basic models of cloud mining: hosted mining and a leased hash power cloud mining. 

Silhouette of man in front of big screen with cloud technology

Hosted Mining

The most popular cloud mining model is called hosted mining. The basic concept behind this model is leasing the mining hardware for the purposes of crypto mining. By lending mining equipment hosted by a third-party supplier, this approach gives the consumer total control over their digital assets. It also allows for a more cost-effective mining process.

The third-party host charges the user a monthly fee for the ability to use both the mining software and equipment remotely.   

Leased Hash Power

The leased hash power cloud mining leases the hashing power (i.e. computing power) of the cloud mining companies. The greater the processing power a miner has, the faster their hash rate would be. Also, they’re more likely to solve the algorithm of the encrypted transaction data block with the added hash power. The client can then get a portion of the total earnings while contributing to the mining farm’s upkeep and operating expenditures.

For this service concept to be effective, the user needs to open an account on the cloud server of the company via its webpage and predetermine the cloud mining contract provisions that include both the amount of hashing power, as well as the period of using the cloud company’s services. 

How Do Cloud Hosting Services Work for Cryptocurrency Mining?

The cryptocurrency mining process was primarily projected as a way to protect the distributed ledger, i.e. the blockchain and its encoded cryptocurrency transactions. The main role of the crypto miners is to validate the conducted transactions by solving a complex mathematical algorithm. For this, they use extremely powerful computers that consume great quantities of power, which results in high electricity costs. In exchange for their work, time, effort, and resources, they are rewarded with native cryptocurrency coins such as Bitcoin, Ethereum (ETH), Litecoin (LTC), or any other altcoin.

Silver bitcoin with mining equipment on background

With the development of the crypto mining process, the processing units got gradually upgraded – from CPUs to GPUs, until finally, ASIC (Application Specific Integrated Circuit) miners became the main mining tools in the hands of crypto miners. The increasingly powerful processing units implied even greater expenses that eventually meant extremely small or no profit for the miners. 

In order to alleviate this problem, cloud hosting services were introduced. By lending expensive equipment and software to miners, cloud mining farms allow more miners to be included, which ultimately lowers the mining costs for cryptocurrency miners. 

Pool Mining Vs Cloud Mining

These two concepts differ in a single most significant aspect, i.e. whether the use of the mining equipment and power resources is centralized or decentralized. In other words, the mining pools join crypto miners who share both the mining hardware and the profit and maintain control over their digital assets. Pool mining also requires that you own a mining rig.

On the other hand, cloud mining gives centralized authority to the cloud mining providers who lease their mining resources to users who purchase a certain amount of hashing power and pay a monthly fee for the service.

How to Choose Free Bitcoin Mining Sites?

Crypto mining is the underlying process of the first cryptocurrency model. In the cloud mining operation aimed at obtaining new coins, Bitcoin miners verify the transaction data blocks and add them to the Bitcoin network. When they mine bitcoins, miners also form and secure the blockchain network. 

Hashflare, Genesis Mining, and Bitclub Network top the list of most reputable Bitcoin cloud mining sites. Generally, these companies allow their users to pick the mining pool they want to join by themselves, as well as to purchase hash power for a vast selection of cryptocurrencies built on the SHA-256 algorithm, including Bitcoin (BTC), Ethereum (ETH), Monero (XMR), and ZCash (ZEC). 

How to Identify Cloud Mining Scams?

Just like in any other walk of life, the reputation of the increasingly popular cloud mining services is sometimes overshadowed by opportunists who lie in wait for fast profit at the expense of quality services. For this reason, it’s very important to make sure you recognize and give your trust to reputable and reliable cloud mining services.

3D illustration of cloud technology with rain on dark background

There are several things that can draw attention to a counterfeit site. The first step toward determining the legitimacy of a cloud mining site is to check its credentials. If the technical info on the site looks fake, exaggerates its successful features and the accomplishments of its team members, or does not even exist at all, you can be more than certain that it is – indeed – made for fraudulent purposes. 

Furthermore, a vast number of such scamming sites feature photographs of distinguished professionals in the niche who usually have no relation with the site offering cloud services. It’s a simple trick to lure users by creating a false image of a reputable team behind the offered services. 

In addition, the sites offering benefits and referral programs that sound too good to be true almost always have a fraudulent incentive attached to the offer, like pledging huge payouts in a short period of time.

A Few Words Before You Go…

When Bitcoin mining first came into focus more than a decade ago, the Bitcoin miners developed the concept of ‘mining farms’ by installing expensive computing equipment. Today, this concept is upgraded by the support of remotely operated cloud data centres that enable crypto mining even from a distant location. 

While cloud mining increased the profitability of cryptocurrency mining by lending the resources for the mining process to the miners for a small fee in return, it does come with a few caveats. Namely, the practical employment of this idea gives centralized power to the cloud mining companies, thus making the mining profits dependent on the crypto market demands. 

In spite of that, cloud mining businesses contribute immensely to the crypto community by including more and more miners in the digital money ecosystem, as well as broadening the opportunities for investment.